Market Commentary 24th June 2019 from Charlie Hancock

With wholesale oil prices climbing this week as a result of increased tensions in the Middle East, companies in the oil sector performed well. BP’s share price rose by 3.8%, with Royal Dutch Shell seeing a 3% rise. Dixons Carphone PLC, the company formed as a result of Dixons and Carphone Warehouse merging, fell by 9.1% across the week. The company released their annual results on Thursday, which showed a loss of £259 million, compared with a profit of £289 million in the previous year. The company’s share price has fallen by 65.4% since formation in August 2014.

ECB president, Mario Draghi, delivered a speech in Portugal on Tuesday which suggested that the bank may return to bond buying via another quantitative easing programme if economic conditions across the continent do not improve. This caused a fall in the Euro and eurozone bond yields, but improved investor sentiment, driving equity markets upwards. Further dovish comments from the US central bank on Wednesday provided a further boost to European equities.

The Fed decided to keep interest rates on hold at their policy meeting, however, comments made by officials from the Central Bank resulted in markets pricing in an increased probability of a rate cut next month. The official statement stated that US economic activity was rising at a moderate rate, but cited uncertainties about the future as a result of trade issues and weakening economic fundamentals. The Fed chairman, Jerome Powell, commented that “an ounce of prevention is worth more than a pound of cure”.

Boeing Co saw their share price rise by 7.1% after signing a new contract with the US Air Force worth a reported $6.5 billion.

Japan’s Nikkei 225 index saw a much more subdued rise of 0.6% across the week. Data released on Tuesday showed that the country’s exports declined for the sixth month in a row in May, driven by reduced demand for chipmaking equipment and automobile parts.

The Bank of England’s 9 committee members voted unanimously to keep interest rates unchanged, however, the Central Bank officials expressed concerns about increasing trade tensions and the outlook for the UK economy.

Comments made by Mario Draghi suggested that the ECB will inevitably introduce further monetary stimulus in order to assist the Eurozone economy, which sent yields across the region downwards.

The chair of the Federal Reserve loosely hinted at action being required sooner rather than later, however, he emphasised that economic data released between now and the next Fed meeting at the end of July, would be crucial to any policy decisions. There is some speculation that bond markets have overreacted to comments from the Fed in recent months, with markets now implying a 76% probability of a 0.25% cut in the base rate range next month.

GBP / EUR – Current 1.1210 Previous 1.1232

This week saw the Pound strengthen slightly against the dollar, but weaken against the Euro. The US dollar weakened against most major currencies this week as US Treasury yields moved downwards.  Currency traders have been negative on Sterling in recent weeks as the probability of Boris Johnson becoming the UK’s next Prime Minister has increased.